BendDAO Suffers Financial Crisis as Ethereum Reserves Run Out

BendDAO is an “NFTfi” protocol that enables NFT holders to pledge their assets as collateral for ETH loans. It is also the most recent cryptocurrency project to have a bank run.

The project is presently experiencing an insolvency crisis as ETH depositors have raced to withdraw their monies, creating a bank-run situation that threatens to bring the NFT market to its knees.

CodeInCoffee, a co-founder of BendDAO, has made a proposal to modify the protocol, which must be approved by a governance vote. BendDAO is facing a bank run, as many NFT community members anticipated last week.

BendDAO is an NFT-specific lending protocol. Its primary value proposition is to enable NFT holders to borrow ETH using their assets as security. When an NFT is deposited into BendDAO, the depositor may borrow up to 40% of the collection’s floor price in ETH.  NFT depositors’ holdings may be liquidated, however, if the floor price falls below a specified level.

In contrast, anybody with ETH may deposit their assets to the protocol in order to get yield. According to BendDAO, deposits of ETH will earn a 77.54% annualised return. As the interest rate rises, borrowers are disincentivized to repay their debts. As a consequence, many have already defaulted on their NFTs, creating a “bad debt” situation comparable to the subprime mortgage implosion that precipitated the 2008 financial crisis.

While NFT depositors risk losing their NFTs if the value of their collection falls, individuals who invested ETH into the system stand to lose if the protocol is unable to recover sufficient cash to refund them. 

Also Read: Two Major Ukrainian Technology Firms Have Started To Accept Bitcoin

Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.

Comments are closed.